Israel allows people to switch their bank accounts from one bank to another..

India allowed people to switch their mobile services from one player to another. We did see the policy helping people punish inefficient players. There have been calls to allow similar switching in other services particularly banking.

In this regard, interesting to see Israel allowing its people to seamlessly switch their bank accounts from one bank to another from 22-Sep-2021 (today):

As part of the numerous steps being led by the Bank of Israel and the Ministry of Finance to enhance competition in the financial system, a new system will be launched on September 22, 2021. The system enables banking system customers to switch from one bank to another—online, conveniently, and securely, at no cost and within 7 business days. In addition, after switching the activity and automatically closing the old bank account, to the extent that additional activity remains, the credits and debits that reach the old account will be automatically forwarded to the new account (“Follow me” service).

This complex system, which was developed over more than 3 years by the banking system, through, among others, Masav[1] as the project’s main factor, markedly simplifies the existing process of switching, and will enable customers to improve their account terms vis-à-vis the banks.

Minister of Finance Avigdor Liberman said, “Rapid transfer from one bank to another is an important step and an integral part of the policy of enhancing competition that we have adopted in various industries. The transfer is carried out at no cost in order to make the service accessible to all the State’s citizens. We will continue working to reduce bureaucracy in significant focal points that impact on, and ease, our daily conduct.”

Governor of the Bank of Israel Prof. Amir Yaron said, “Completing this step is another stage on the way toward an open, transparent, and more competitive financial system that we are promoting on several fronts, and that will enable customers to easily and conveniently choose the providers of the various financial services they use. We will continue to utilize the digital age available to us in order to advance processes and reduce barriers in the financial system and in the payment systems. The system was established after diligent work and the investment of considerable resources at the Bank of Israel, together with the Ministry of Finance, Masav, and the various banks, and I would like to commend all the partners in this work.”

They have a dedicated website for this policy.

It will take 7 days to switch from one account to another, Plus the system will allow an individual to receive funds on the old bank account for two years:

In March 2018, an amendment to the Banking (Service to the Customer) Law, 5741-1981, was passed, which requires the banks, at the customer’s request, to act to enable the customer to move his or her activity from the bank in which the account is managed to another bank in an online, convenient, and secure manner, at no cost. The online system will make it possible to switch Israeli households’ current accounts[2] in a convenient and friendly manner, other than accounts with a complicated issue or that have some legal hold against them[3], and thus will markedly simplify the current complexity of the switching process between banks.

The process of switching the account shall take place within 7 business days. Within such process, it will be possible to switch the following financial activities: credit balances in shekels and in foreign currency, debit balances in shekels and in foreign currency, authorized debits of a current account, checks, securities (Israeli and foreign), payment card—bank and nonbank—activities, and standing orders.

With regard to loans (including housing loans), and with regard to deposits and savings, special arrangements were made, according to which the banks will work on an individual basis with the customers regarding the handling of such products.

With the goal of easing things for customers, the process of switching banks through the system will also allow a “Follow me” (routing) mechanism for two years from the date of the switch. This means that transactions[4] that arrive at the old account after the switch, will be automatically routed to the new account, in contrast to the current situation in which all debits and credits are returned because the account is closed, and the customer must contact the various entities that are crediting or debiting the account.

In order to simplify the process, for any issue that arises during the process of switching banks, customers will have one address—the new bank—which the customer can contact about any issue. It is also noted that in a case of failure in the switching process or the “Follow me” mechanism, it will be the new bank’s responsibility within the framework of legislation that is currently being promoted by the Ministry of Finance.

Submitting a request for transferring between banks will be possible via the banks’ websites (via home computer or mobile device) as well as at bank branches.

Really interesting to see how this will work out.

I think other countries could consider implementing this as well. If implemented in India, will be super interesting to see how people will switch banks. If one were to guess, the weak performing public sector banks might lose most customers to larger public sector banks and private banks. This alone could lead to closure of some poorly performing public sector and private banks.

The problem with such a policy could be that if any bank goes into trouble, it will lead to a switching run. The customers will not just demand back deposits but switch them at ease. Good for customers but could be really difficult for banks..

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